EMEA server racket no longer crashing

If the numbers coming out of box counter IDC are any indication, then the server market in EMEA has stopped crashing and may even level off with the possibility of actual growth in the coming years.

Don't get too excited. We're not talking about a lot of growth here in the period from 2009 through 2014, for which IDC just completed its forecasts as well as drilling down into the fourth quarter figures for 2009. Why are we not going to see a server boom in Europe? The advent of much-improved virtualization hypervisors on x64 iron is going to put a damper on revenue and shipment growth. And if you are thinking that there will be a rebound in spending on RISC, Itanium, and mainframe iron, don't hold your breath on that one either.

"The overall economic environment is picking up after a prolonged recession," explained Nathaniel Martinez, director of IDC European systems and infrastructure solutions, in a statement accompanying the stats and prognostications. "The fourth quarter of 2009 marked the definitive turn to industry standard technologies, and corporate clients that were typically customers of enterprise servers will be considering x86 technologies for an increased number of workloads in the forecast period."

This is why IDC is only projecting a 2.4 per cent increase in aggregate server revenues in the EMEA region for 2010. While that seems pretty anemic, it beats the hell out of the 26.4 per cent revenue decline in 2009, when the market collapsed to $12.8bn. Server makers and their reseller partners should not bank on 2011 as returning to normal, or even 2012, 2013, or 2014. In fact, they should consider 2009 the new normal and learn to live with intense competition and profit pressure.

IDC is projecting that between 2009 and 2014, revenues will be nearly flat at three-tenths of a per cent across those five years when gauged using a compound annual growth rate, and shipments will only grow by 4.9 per cent. In other words, EMEA server sales are not expected to return to their 2007 peak ahead of the Great Recession: $19bn. Perhaps ever, but certainly between now and 2014 as far as IDC's wizards are concerned.

Another way to characterize what is going on in the server arena is to say that it will take four years to come close to recovering from the one year of decline in 2009 and to get back to the peak of 2007 will take one or two years more - perhaps. And you can just forget about ever seeing server revenues hit anything like $65bn in 1998, when the dot-com, Y2K, and ERP booms were raging and people simply paid a lot more for considerably fewer servers.

I laugh every time I think that IDC was projecting $89bn in server sales in 2003 back in 1998, not seeing all those bubbles burst. Which cut the market in half. And sometimes, I think IDC and Gartner don't appreciate the compression effects that virtualization (which allows companies to interleave applications on fewer servers) and cloud computing (which allows for the interleaving of workloads across companies) are going to have on shipments and revenues in the coming years. They are betting that workloads can outgrow Moore's Law and all those cores. I simply don't believe the aggregate workloads of the world can sustain 50 per cent growth every 12 to 18 months, as chip makers seem to be able to deliver.

In the fourth quarter, things were not all peaches and cream either, it being the sixth consecutive quarter of declines for server sales on the whole. But the hemorrhaging in Europe seems to have abated a bit, with sales off only 10.6 per cent, to $3.97bn. Shipments were only off 5.3 per cent to 600,000 units in the quarter. The declines are getting less steep, and they should flatten out soon. As El Reg previously reported, IDC reckons that global server sales in the fourth quarter were down 3.9 per cent, to just under $13bn.

In the final quarter of last year, Hewlett-Packard was the revenue leader in EMEA, with $1.45bn in sales, down 9.6 per cent, and IBM did not gain much share, with sales in the region down 10.l per cent, to $1,29bn. Sun Microsystems, which is now part of the Oracle collective, experienced an 18.6 per cent drop in EMEA in the final thirteen weeks of 2009, with $387m in revenues, followed by Dell's 16 per cent fall to $337.4m. Fujitsu rounded out the top five, with a mere 4.7 per cent decline to $201.5m - no doubt helped by its acquisition of Siemens, the indigenous maker in Europe (sorta). All other server makers garnered $306.4m in sales in EMEA in Q4 2009, down only 3.1 per cent from the prior year.

Average selling prices were on the rise as 2009 came to a close as customers bought beefier boxes to virtualize them. And to be more precise, they seem to be buying heftier entry and midrange x64 machines. Sales of non-x64 boxes fell by 27.4 per cent in Q4, to $1.6bn, in the EMEA region, but x64 servers grew by 7 per cent, to $2.3bn. Itanium and RISC boxes running Unix operating systems had a 24.7 per cent decline in Q4, to $1.08bn. Windows-based servers accounted for $1.7bn in revenues in the final quarter of last year, growing 7.2 per cent. Linux-based servers saw 4.1 per cent growth in the quarter, but IDC did not say how much money they made.

Volume servers (those costing under $25,000) had a 5.3 per cent uptick in Q4, but high-end machines (those that cost $250,000 or more) took one on the chin with a 37.6 per cent drop. Midrange boxes (which cost between $25,000 and $250,000) had a mere 3 per cent decline in the fourth quarter.

For the full year in EMEA, server units were down 23.6 per cent, to 2 million units, and revenues were down 26.4 per cent, to $12.8bn. ®